Feedlots 'place' up

CUE the "Jaws" theme music. Just when everyone thought it would be safe to go back into the bullish cattle market outlook scenario, along came the feedlot inventory report.

The report showed April marketings that were less than expected and April placements that were more than expected — the latter significantly so (Table 1). The report was negative to the cattle markets, according to Feedstuffs sources.

April marketings were 2.2% more than April marketings last year, and placements were 15.1% more than last year — 3% more than analysts had penciled in their pre-report estimates.

Sources tried to add some perspective to placements, noting that April placements last year were the smallest since April 2002, which means that any comparison to year ago would be large. Sources also said there was an extra workday in April this year than last April, and, adjusting for that, placements were up "just" 10%.

However, sources acknowledged that placements were only slightly smaller than in April 2011, and placements then were the largest since April 2003. Any way one cuts the number, placements were impressively large, sources said.

Marketings were brisk enough to keep the total inventory and the 120-day-plus inventory trending under year ago, sources said, noting that the inventory was under year ago for the ninth straight month. However, sources added that the comparison was the smallest year-over-year comparison in six months.

Placements were a problem. Bob Price at North America Risk Management Services Inc. pointed out that placement weights were extraordinarily heavy, with the two heaviest weight categories — 700-799 lb. and 800 lb.-plus — being 20% and 21% larger than year ago, which indicates that a lot of long yearlings that were grazed outside the feedlots were brought on feed.

He said this means that April placements will be market ready very quickly, and seasonally higher June and July marketings and slaughter will be matched all the way through summer and into early fall.

Sources summed things up this way:

Okay, the beef cutout is record high, consumer and export demand is holding and the feedlot inventory is lower than year ago, all of which should be positive to cattle prices.

However, April placements exceeded expectations and were heavy, and according to anecdotal information, May placements will come in the same way. At the same time, record-high consumer beef prices may drive consumers away from beef to pork and poultry as soon as they get over the novelty of spring grilling.

It may well be that the discounted futures are correct, sources said.

The worries about high beef prices are illustrated in the "height" of the cost to grill a hamburger, which has increased 61% since 2000 due mostly to the cost of the beef, not the bun, pickles and ketchup, according to the U.S. Department of Agriculture (Figure). Overall food price inflation for at-home food has increased 41% since 2000.

The cattle markets were just lightly tested last week, and that was in the Southwest, where cattle sold at $124/cwt. last Wednesday, down $1 from the week before.

Feeders indexed at $131.26/cwt., down $3.13 from the week before.

At the same time, the Choice cutout increased $2.60 to $211.37/cwt. — a record high for the fourth straight week and 7.8% higher than year ago — on good demand for the long Memorial Day weekend.

Analysts were divided on what's next. Some noted that packers are operating very profitably and, with capacity that's underused, will increase their bids for cattle, but others said beef is near its seasonal top and re-emphasized that there may be "a significant shift" in consumer demand to other meats.

The hog markets were up 11 cents to $1.92 last week and were $90.74/cwt. on a lean carcass basis in the eastern Corn Belt last Thursday and $90.22/cwt. out west, 11.3% higher than year ago. Prices were equivalent to a $68-69 cash hog market and very close to break even.

The pork cutout increased on higher prices for pork products as demand held through the week for the holiday weekend.

Sources took a bearish view of the market situation. Hog slaughter and pork production are expected to increase this summer, pork exports are soft and chicken production is increasing, noted Dennis Smith at Archer Financials.

He also said the cold storage report (Table 2) showed that pork stocks at the end of April increased significantly from the end of March and were 5.9% more than the year before and record high for any month.

Additionally, Rich Nelson at Allendale Inc. said the futures are about done, explaining that the futures have "a clear seasonal" trend to increase from early spring into the second or third week of May, after which they trade sideways with an occasional swing down or up.

The futures closed last Thursday at levels suggesting breakeven prices in June and July and losses — some substantial — for the rest of the year.

Elsewhere in the livestock and poultry markets last week, the chicken markets remained steady to firm on (like the beef and pork sectors) good demand for the holiday weekend and tight supplies, sources said.

Chickens increased 1 cent to $1.12-1.17 and $1.03-1.10/lb. in the eastern and midwestern regions last Thursday, prices that were record high for the second week and 30.9% higher than year ago.

Breast meat increased 3 cents to $2.07-2.17/lb., 56.9% more than year ago.

The cold storage report suggested that chicken has some trouble due to softer exports and weaker wings, with leg quarter stocks at the end of April up 34.0% from last year and wing stocks more than double year ago.

The egg markets eased off 1-2 cents due primarily to prices that increased too much to keep Mexico, which has been buying U.S. eggs to restock its avian influenza-depleted supplies, in the U.S. market, sources said.

Eggs were $1.31-1.35 and $1.22-1.24/doz. for large-sized eggs delivered to eastern and midwestern store doors last Thursday, 26.7% more than year ago.

The turkey markets were unchanged, with a national average offer last Thursday of 95 cents to $1.01/lb. for hens and 92 cents to $1.01/lb. for retail-sized toms, 8.8% and 12.3% less than year ago.

Fresh tom breast meat was also unchanged at $1.55/lb., 18.4% lower than year ago.

The cold storage report suggested that turkey stocks, except for tom turkeys, are starting to improve as the industry has been gradually reducing production. Turkey slaughter last week was down 2.1% from last year, and turkey meat production was down 1.4% from last year.

Volume:85 Issue:21